The government wants the individual mandate to be a tax, not a penalty, for two reasons.

1. Additional Congressional Authority Under Art. I, Sec. 8

Classifying the mandate as a tax opens up a head of congressional authority as an alternative to the Commerce Clause. If classified as a tax, the mandate could fall within Congress's power to "lay and collect Taxes, Duties, Imposts and Excises, to ... provide for the ... general Welfare of the United States” US Const. Art 1, Sec 8. As such, if the Supreme Court finds that the individual mandate does not comport with the Commerce Clause, the government is hoping that the court will find authority for it in the broader congressional authority to tax. This line of argument is unavailable if the individual mandate is classified as a penalty.

2. Anti-Injunction Act May Bar Lawsuit

A completely different statute called the Anti-Injunction Act prevents lawsuits "for the purpose of restraining the assessment or collection of any tax." 28 USC 7421. Essentially this means you can't bring a lawsuit until the IRS actually tries to collect the tax. Therefore, the government argues that this means the current lawsuit is barred since the "tax" does not go into effect until 2014. Of course, this argument will only delay the lawsuit since even if the mandate is classified as a tax, as soon as the IRS begins collecting it in 2014, the suit will be allowed under the Anti-Injunction Act.

Please note that the text of Act refers to the mandate as a penalty, not as a tax. See PPACA Sec. 1501(b). Further complicating the government's desire that the mandate be classified as a tax is that the legislative history of the Act indicates that the mandate was called a "tax" in earlier congressional drafts, but that the term "tax" was replaced with "penalty." (See Florida v. U.S. Department of HHS, 716 F.Supp.2d 1134 for a discussion about this.)

-- HarryKhanna - 24 Jan 2012